Jointly and Severally

What is 'Jointly and Severally'

Jointly and severally is a legal term describing the liability of a group of people bound together by an agreement. It is most often seen in the context of a loan. The term is also used in underwriting syndicates to refer to the distinct responsibility of individual companies to sell a certain portion of unsold new issue.

BREAKING DOWN 'Jointly and Severally'

"Jointly and severally" is used in the context of a common action by two or more people, often when taking out a loan or giving out a power of attorney. In a legally binding document, it determines a party's level of responsibility.

Liability

In its simplest form, "jointly and severally" means that all of the parties to a contract are obligated to perform all of the actions required under contract, with any proportionality. This is in opposition with the expression "jointly," where the parties have a proportional obligation.

For example, if a bank loans $100,000 to two people jointly and severally, then each person is responsible for repaying the total amount of the loan to the bank and the bank may choose whom it enforces the loan against in case of default. Depending on the circumstances, the person forced to pay the bank will probably have recourse against the partner, but only after the bank has been paid. Essentially, the bank is free to sue the partner from whom it feels it will be easiest to secure repayment, while leaving that person with the task of dealing with the weaker partner.

If the partners are jointly liable for the loan, then each of them can only be forced to repay $50,000 to the bank. The credit risk for the bank is greater in this scenario than in the previous one.

Joint and several liability can also occur because of specific laws. For example, it is quite common for employers to be responsible for damages caused by their employees. For instance, if a construction worker ruptures a pipe in a home, his employer can be jointly and severally liable for the damages.

Securities Industry

The expression "jointly and severally" is also commonly used in the securities industry in the context of the underwriting of a bond or a new stock issue. In such cases, a firm that agrees to sell a portion of the total issue is responsible for that portion and for its portion of any remaining unsold securities.

An underwriter who has jointly and severally agreed to a 30% stake in the sale of a new issue must sell 30% of any remaining unsold portion, even if that underwriter has already sold more than this amount in the initial sale. All members of the syndicate are responsible for any leftover shares.